The government recently made a lot of changes to superannuation.
For young people one big improvement stands out, for those who are near retirement things got a lot more complicated. Let me be your guide and see what we can do. All the changes take effect from July 1st 2017.
The best part of the changes is that employees will be able to make personal super contributions that will reduce their taxable income, so-called concessional contributions. That means instead of paying 34% or 38% tax outside super, this can be reduced to 15% inside super and you don’t have to do it via a salary sacrifice arrangement any more. That is great news, putting employees finally on a par with the self-employed.
The other changes are mostly aimed at making super less expensive for the government and to make super slightly less useful for high income earners. In the past, every time such changes were mooted there was a chorus from superannuation specialists that the proposed change would not work for some reason or another – and they were right and the changes usually didn’t happen.
These latest changes are well-thought out and well-targeted. They only have one downside: Massive complications. This means without financial advice many people will miss out on benefits that are available or get caught in paying penalties. If you are 50 or over and especially if you are 56 or older and working, you will need advice now, well before July 1st as quite a few things will disappear.
One of the biggest benefits of the super laws is that there is a big, legal tax dodge for those over 60 (and to a much smaller degree for those over 56), paying no more than 15% income tax rather than 34% or 38%. It is called a transition-to-retirement pension and the big change is that the investment income from such a pension will be taxable from July 1st. For the moment there is a simple way around this change.
If your super is at $400,000 or above, regardless of your age, then there are lots of changes coming up. Some are good (unused contributions can be used later on) and others bad (lots) but all of the changes are complicated. Superannuation is a great way to pay less tax in your life so there is a lot to recommend it despite the extra complications.
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